Globalisation backlash enters new phase with Trump win

Different country. Much, much bigger implications. That’s the economic message from Donald Trump’s victory in the year of shocks. By comparison, Brexit was a sideshow.

If 1989 was the year that marked the beginning of the global age, 2016 has been the year when the basic tenets of globalisation have been challenged – first in the UK and now in the US. The wall came down in Berlin on a November night 27 years ago. The question now is whether they start going up again.

It’s not that there have not been beneficiaries from globalisation. The past quarter of a century has seen the development of a massive new middle class that has done well out of trade and the free movement of capital.

But that middle class has been in Shanghai and Mumbai. Working people in the north of England and the rust belt of America think they have had a raw deal from an economic system that has favoured the well educated and the better off. Just like Brexit, Trump’s victory is a rejection of the status quo – of multinational companies that don’t pay their taxes, of trade deals weighted in favour of the boardroom rather than the workers on the shop floor, of year after year of squeezed living standards, of rising inequality, of being ignored and patronised.

It is, of course, ironic that Americans have chosen a billionaire who doesn’t appear to have paid much tax for the past couple of decades to be the next occupant of the White House, but in this race Hillary Clinton was the candidate of the establishment – the choice of Goldman Sachs and the Washington elite. Trump marketed himself as the outsider.

So what are the implications of his victory? Financial markets seemed reassured by the president elect’s victory speech and the hope that Trump might not be as bad as feared meant the initial reaction on stock markets and on the foreign exchanges was muted. Perhaps unsurprisingly, given that Trump has threatened to build a wall across the Rio Grande and to tear up the North American Free Trade Agreement (Nafta), the biggest early casualty was the Mexican peso.

There are though potentially far-reaching medium and long-term implications of a Trump victory.

The first involves the Federal Reserve, America’s central bank. Janet Yellen, the Fed’s chairwoman, is now living on borrowed time. As an unabashed Clinton supporter, her term lasts until 2018 when she would almost certainly be replaced. Yellen may jump before she is pushed. If she does, Trump will bring in someone who is less keen on quantitative easing, the money-creation programme used by the Fed and other central banks since 2008 in order to boost economic activity.

Markets have already started to assess whether the Fed will now go ahead with the interest-rate rise it has signalled for December. US borrowing costs are likely to stay lower for longer.

Trump’s views about fiscal policy – tax, spending and the budget deficit – are not entirely clear, but he seems to want lower taxes, higher spending on America’s clapped-out infrastructure and defence, and less federal borrowing. The prospects of cheaper borrowing and fiscal easing should lead to stronger growth in the short term.

Financial markets are more concerned about the structural changes Trump is planning for the US economy. He has threatened to brand China a currency manipulator, a decision that could easily prompt a full-scale trade war between the world’s two biggest economies. The two trade deals Barack Obama has been negotiating – the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) are dead in the water. Trump is no fan of the World Trade Organisation, the body that polices global trade and was created in the first flush of post-cold-war globalisation euphoria. The last time American economic policy was this protectionist was in the 1930s.

Wall Street might not like that but it only has itself to blame. Globalisation resulted in massive and disruptive movements of capital around the world, which made some people at the top unbelievably rich but culminated in the financial crisis of 2008. The impact of that crisis is still being felt, not just in poor economic performance but in political disenchantment. Trump is one result of the festering anger. If the year of shocks continues into 2017, Marine Le Pen may be another.